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Managing the commons at ESNIE

Managing the commons at ESNIE

One of the most discussed authors of the last conference at ESNIE was the late Elinor "Lin" Ostrom – the first (and only) female Nobel laureate in economics. In her work she looked at the role of institutions in solving the tragedy of the commons from an empirical perspective. Instead of developing abstract models in the lab, she visited various communities and explored how people actually solved collective problems.

For those who are not familiar with the tragedy of the commons, a small introduction might come in handy. When we think of economics, we usually consider private goods such as cars, assets, savings and so on. These goods are characterized by their excludability (one can prevent others from using his/her car) and rivalry (if one is using the car, nobody else can use it at the same time). However, these are not the only goods available, and were certainly not the goods on which "Lin" focused her research.

Certain goods may present only one of the characteristics mentioned above – they might be non-excludable, non-rival or neither. The first case corresponds to common pool resources, such as fishing pools where the exclusion of potential users might be possible, but also expensive. Club goods are excludable and non-rival. A prominent example is the cinema which you can prevent some people from using, but once inside the presence of more viewers does not reduce the utility of others (at least in most cases). Finally, non-rival and non-excludable goods are also known as public, and a prominent example is national defense.

Non-private goods generate problems of coordination, as what is optimal for each individual might not be so for the community. Common pool resources are replenishable, as long as individuals use it with moderation. However, given that it is costly to monitor the use of the resource, each individual has incentives to take as much as possible from the common pool, which ends in its overexploitation.

Marco Casari presented an empirical investigation on how the citizens from the Trentino region (Italy) solved the coordination problems associated with common pool resources. Their analysis covers the period from 1200 to 1800, when the Napoleonic invasion tore apart the legal system prevailing in the communities. An interesting feature of the regions is the coexistence of private and common lands, which indicates that people deliberately chose this form of property rights to satisfy their needs.

In a 2007 paper (available here), prof. Casari studied the institutional foundations for the use of the common resource: the Carta di Regola, or charter. The charters were local provisions that indicated how the disputes between the peasants should be solved. Surprisingly, most of the charters covered the institutions that "Lin" deemed needed necessary to sustain cooperation, such as a clear delimitation of the common resource (forest, or meadows); a mechanism for the appointment of supervisors, whose responsibility was to monitor rules; and the penalties for those who violated the rules (which he found to be gradual and particularly mild for one-time violations).

Given that not all communities adopted the charters, the author proceeds to ask why this institution emerged in some villages and not in others. The answer is threefold. First, it was due to the existence of enforcement costs, which are captured by the distance to the regional capital. Second, due to the risks of violations, which were higher when the common pool and/or the population was larger. Third, though to a lesser extent, due to a contagion effect as communities tended to adopt the charter if other communities had done it before; however, the author discards the existence of competitive pressures in favor of an efficiency based explanation.

The charters also specified how the right to use the common pool could be acquired by non-community members. Usually two options were specified. First, outsiders could gain access after fulfilling several criteria such as: living in the city, having an honest reputation and paying a fee to the community. Second, outsiders could marry local people and "inherit" the access. This system created potential problems, as a village population could double within one generation (if every local married a foreigner), leading to an impoverishment of each member (as their share of the common resource would fall). Therefore, communities developed additional provisions in their charters limiting the number of heirs. More importantly, their data shows that this reduction was not gender neutral; quite the opposite was in fact true. From an egalitarian system, communities moved towards different versions of patriarchal systems, where women could inherit only if they did not have brothers. Though at first this development might have resulted from random factors, it had a lock-in effect: each community would have been in a worse position if it decided to move in the opposite direction. The papers with more details on this transition is available here.

Though the main focus of the article is set on the Italian communities (and very specific ones at that) before the XIX century, it offers a set of ideas which might be interesting for understanding present day dilemmas. For instance, the inheritance system provides some hints on the origins of gender inequality, while the restriction criteria (and the arguments behind it) bear more than one similitude with current regulations on immigration and the public healthcare system.